From Joe Stewart, executive director of the Insurance Federation of North Carolina, an association of property and casualty insurers:
Our annual parade of storms is well under way. And a recent conference here in Boone on coastal insurance underscored the havoc a major hurricane could cause not just at the coast, but for anyone who buys homeowner's insurance in North Carolina.
A storm that depletes the reserves of the Beach Plan, the state's pool for coastal wind coverage, could lead to rate increases for homeowners across the state.
“We're going to get the big one some day,” retiring Insurance Commissioner Jim Long told conference-goers at Appalachian State University. “I hope it's after this season, when I'm no longer commissioner.”
More than half the U.S. population lives within 50 miles of our coasts. Forecasters agree we're in a period of increased, more-severe hurricanes that could last two more decades. Yet we keep building bigger and bigger homes at the coast – in the known paths of storms.
In North Carolina, every company that offers homeowner's insurance is obligated to a state-mandated pool called the Beach Plan, even if the company doesn't cover coastal property. The plan provides coverage for wind damage in 18 coastal counties.
The Beach Plan has roughly $650 million in reserves – enough, combined with reinsurance arrangements, to pay $2.5 billion in losses. But that's not nearly enough to cover the destruction a severe storm could inflict on $75 billion in property the plan insures.
If the plan exhausts its resources, it would make assessments against insurance companies to recover its losses. Those charges would lead to higher homeowner's rates statewide, and potentially drive small insurers into bankruptcy.
That would make insurers even more reluctant to cover property in North Carolina – a crisis that would no doubt suppress development and make it even harder for homeowners to recover.
Before N.C. legislators adjourned last month, they ordered a study of how a major hurricane could affect North Carolina's insurance market.
Phase in fixes to Beach Plan
Any fixes to the Beach Plan should be phased in over time. But we encourage legislators and the insurance commissioner, who approves the Beach Plan's operations, to consider that:
Current law says the Beach Plan is the “market of last resort” for coastal property owners. But it has become the market of choice. It should return to its intended role.
Prices should more closely reflect risk. Inland homeowner's rates are already higher than they need to be so that coastal property owners pay less than they otherwise would.
Beach Plan prices should be adequate to build reserves and buy reinsurance to address catastrophic losses the plan will inevitably face. The plan should adopt coverage limits like other states' coastal plans.
The state should strengthen building codes for coastal structures. Strong building codes mean less damage and fewer tax dollars spent to clean it up.
Because the Beach Plan affects residents across the state, we encourage voters statewide to ask candidates for legislator and insurance commissioner what they'll do to put the Beach Plan on firm ground.